The Supreme Court’s unanimous ruling inWeyerhaeuser Co. v. U.S. Fish & Wildlife Serv., 586 U.S. (2018) has important implications for landowners facing “critical habitat” designations under the Endangered Species Act (ESA) for areas that are unoccupied by listed species. The timing of this decision likely means the US Fish and Wildlife Service (FWS) will incorporate it into forthcoming final regulations the FWS is currently promulgating.

Background

In Weyerhaeuser, the US Supreme Court considered two main questions:

Can critical habitat include areas where the species cannot currently survive?

Is the FWS determination not to exclude a particular piece of land as critical habitat reviewable by a court?

At the center of the dispute is a three-inch long frog, called the dusky gopher frog, that spends the majority of its time in burrows and stump holes. The FWS designated the dusky gopher frog as an endangered species in 2001 when the frog’s population had dwindled to a group of 100 living in a single pond in Mississippi. Under the ESA, when the FWS designates a species as threatened or endangered, it must also designate critical habitat for that species unless it is not prudent or determinable. Critical habitat may include areas that are currently occupied by the species, and areas unoccupied by the species if those unoccupied areas are essential for the conservation of the species. Before designating critical habitat, the ESA requires the Secretary “to take into consideration the economic impact” of the designation and authorizes him or her to “exclude any area from critical habitat if he determines that the benefits of such exclusion outweigh the benefits of [designation].”

In 2010, the FWS designated four areas known to have populations of the dusky gopher frog as critical habitat because they each possessed three physical and biological features “essential to the conservation” of the frog:

Ephemeral ponds

Upland open-canopy forest containing the holes and burrows in which the frog could live

Open-canopy forest connecting the two

The FWS determined that the four designated occupied critical habitats would not be enough to ensure the frog’s conservation and so designated an area of unoccupied critical habitat consisting of a 1,544-acre privately-owned site in St. Tammany Parish, Louisiana. The FWS dubbed this area “Unit 1.” The last known dusky gopher frog on Unit 1 was seen in 1965. Since that time, the majority of Unit 1 had become a closed-canopy timber plantation. Despite not having open-canopy forests necessary for designation as critical habitat, the FWS determined that an open-canopy forest could be restored with reasonable effort.

When proposing Unit 1 as critical habitat, FWS also considered the economic impacts of the designation. Despite finding that the economic impact could reach US$33.9 million, the FWS concluded the potential costs were “not disproportionate” to the conservation benefits of designation and thus would not exercise its discretion to exclude Unit 1 from the dusty gopher frog’s critical habitat designation.

Unit 1’s owners, the Weyerhaeuser Company and family landowners, sued the FWS in an attempt to vacate Unit 1’s designation as critical habitat. Weyerhaeuser made two principle arguments in its suit:

That the FWS could not designate Unit 1 as critical habitat because the dusty gopher frog could not survive there in its current state. In other words, Unit 1 cannot be critical habitat because it is not currently suitable as habitat for the dusty gopher frog.

That the FWS determination to not exclude Unit 1 from the frog’s critical habitat was arbitrary, capricious, and an abuse of discretion because FWS did not adequately weigh the benefits of designating Unit 1 against the economic impact.

The US District Court for the Eastern District of Louisiana rejected both arguments, holding that Unit 1 met the statutory definition of critical habitat and that the FWS determination not to exclude Unit 1 was “committed to agency discretion by law” and therefore not reviewable. The US Court of Appeals for the Fifth Circuit affirmed and the US Supreme Court granted certiorari.

Does critical habitat have to be “habitat”?

In determining whether critical habitat must also be “habitat,” the Court looked to both the ordinary understanding of how adjectives work along with the statutory source of authority for critical habitat designations. The Court first noted that “‘critical habitat’ is the subset of ‘habitat’ that is ‘critical’ to the conservation of an endangered species.” Then, looking at the statutory language, which states that the Secretary must “designate any habitatof such species which is then considered to be critical habitat,” the Court concluded that “[o]nly the ‘habitat’ of the endangered species is eligible for designation as critical habitat.”

While holding that critical habitat must also be habitat, the Court acknowledged that the lower courts did not have the occasion to interpret the term “habitat” or determine whether Unit 1 could qualify as “habitat” under the ESA. Therefore, the Court remanded those questions back to the Court of Appeals for consideration.

Is the FWS determination not to exclude an area from critical habitat designation reviewable by a court?

The Court easily came to the conclusion that the FWS determination not to exclude an area from critical habitat designation is reviewable. “[T]his case involves the sort of routine dispute that federal courts regularly review: An agency issues an order affecting the rights of a private party, and the private party objects that the agency did not properly justify its determination under a standard set forth in the statute.”

The Court rejected the argument that this type of decision was “committed to agency discretion by law.” That exception in the Administrative Procedure Act (APA) has been read quite narrowly restricting it to “rare circumstances where the relevant statute is drawn so that a court would have no meaningful standard against which to judge the agency’s exercise of discretion.” Here, the statute requires the Secretary to consider economic impact and relative benefits before deciding whether to exclude an area from critical habitat or to proceed with designation. This, the Court said, sets forth enough of a standard against which to judge the Secretary’s exercise of discretion.

This issue too was remanded to the Court of Appeals to “consider whether the [FWS] assessment of the costs and benefits of designation was flawed in a way that rendered the resulting decision not to exclude Unit 1 arbitrary, capricious, or an abuse of discretion.”

What this means for developers and landowners

First, while the lower courts will still need to decide on the exact contours of the FWS’ powers to designate critical habitat, the Court sent clear signals that it believed FWS overstepped its authority. The practical effect, however would likely be smaller critical habitat designations, and more property excluded from critical habitat designations. Indeed, even before this ruling, the FWS routinely excludes areas from critical habitat designation that have been developed, such as paved roads, buildings and other impervious surfaces that are no longer natural in nature.

Second, by ruling that the FWS determinations to not exclude an area as critical habitat are judicially reviewable, the Court gave landowners and developers a powerful tool to protect their interests and to challenge their lands’ designations as not meeting the strict criteria of “habitat.” This means that the FWS will need to carefully document its decision-making process such that a court will not find its ultimate decision to be arbitrary or capricious.

Additionally, as described in our August 2018 Client Alert, the FWS and National Marine Fisheries Service (NMFS) has proposed numerous reforms to the ESA implementing regulations, including those related to critical habitat designations. These reforms, which some commentators described as an attempt by the Trump administration to dismantle species and habitat conservation under the ESA, are intended to streamline and accelerate federal environmental reviews and permitting for various projects.

The Weyerhaeuser decision likely provides further support for at least one of the proposed reforms. Current regulations, promulgated by the Obama administration in 2016, allow the FWS to evaluate both occupied and unoccupied areas concurrently when designating critical habitat, without any step-wise considerations. The proposed rules would restore the pre-2016 requirement that the FWS “first evaluate areas occupied by the species” when designating critical habitat, and to consider unoccupied areas only when the unoccupied areas are essential because either:

Occupied areas are inadequate to ensure the conservation of the species

The result would be a less efficient conservation of the species

The preamble to the proposed rule states that restoration of the pre-2016 rule is meant to address concerns that “the Services intended to designate as critical habitat expansive areas of unoccupied habitat” and that the proposed rule changes “will provide additional predictability to the process of determining when designating unoccupied habitat may be appropriate.” The FWS presents a hypothetical that mirrors the facts in Weyerhaeuser as an example of how the agency can take into account the amount of restoration required to turn unoccupied areas into suitable habitat: “For example, the Services might conclude that an area is unlikely to contribute to the conservation of the species where it would require extensive affirmative restoration that does not seem likely to occur such as when a non-federal landowner or necessary partners are unwilling to undertake or allow such restoration.”

The final regulations were anticipated to be issued in December 2018, but have been delayed. With the Court’s ruling in Weyerhaeuser, we anticipate that the FWS will take the Court’s decision into consideration in developing its final rule, and could codify these developments as logical outgrowths of the proposed rules.

Next steps

The case has been remanded to the Fifth Circuit for consideration of the two issues set forth by the Supreme Court. The Fifth Circuit is expected to remand to the Eastern District of Louisiana to reconsider in light of the Supreme Court’s decision. While the ruling was a blow to environmentalists, property rights groups including the Cato Institute applauded the decision, declaring it “an important win for property owners against arbitrary agency decisions.”

Latham & Watkins Environment, Land & Resources lawyers will continue to track and report on developments related to the Endangered Species Act that impact landowners and project developers.

The purpose of this communication is to foster an open dialogue and not to establish firm policies or best practices. Needless to say, this is not a substitute for legal advice or reading the rules and regulations we have summarized. In any particular case, you should consult with lawyers at the firm with the most experience on the topic. Depending on your specific situation, answers other than those outlined in this blog may be appropriate. Your use of this blog site alone creates no attorney client relationship between you and Latham & Watkins LLP. Do not include confidential information in comments or other feedback or messages left on the Global Privacy & Security Compliance Law Blog Blog, as these are neither confidential nor secure methods of communicating with attorneys.

Portions of this blog may constitute attorney advertising. Any testimonial or endorsement on this profile does not constitute a guarantee, warranty, or prediction regarding the outcome of your legal matter. Prior results do not guarantee a similar outcome. Results depend upon a variety of factors unique to each representation.

Latham & Watkins operates worldwide as a limited liability partnership organized under the laws of the State of Delaware (USA) with affiliated limited liability partnerships conducting the practice in France, Italy, Singapore, and the United Kingdom and as an affiliated partnership conducting the practices in Hong Kong and Japan. Latham & Watkins operates in South Korea as a Foreign Legal Consultant Office. Latham & Watkins works in cooperation with the Law Office of Salman M. Al-Sudairi in the Kingdom of Saudi Arabia.